Employer Shared Responsibility (ESR) Reporting Checklist

View a quick list of what you need to know at tax time when reporting information to meet employer shared responsibility requirements under the Affordable Care Act (ACA).

One of the goals of the ACA was to help ensure that businesses with a large number of employees do their part to take care of their employees' healthcare needs. The ACA includes provisions to meet this objective. If you're an applicable large employer (ALE) with in general, an average of 50 or more full-time employees, including full-time equivalents, during the prior calendar year, you must fulfill certain employer shared responsibility reporting obligations to the Internal Revenue Service (IRS) regarding the Affordable Care Act's employer shared responsibility provision. ESR reports let the IRS know you're meeting your obligation to offer affordable health care coverage to your workers.

What Is Employer Shared Responsibility (ESR)?

The shared employer responsibility provisions under the ACA provide that ALEs must offer minimum essential coverage that is affordable and provides minimum value to full-time employees and their dependents or risk a potential assessment if at least one full-time employee receives a premium tax credit when purchasing coverage in a government marketplace. Affordability and minimum value are determined by IRS-approved calculations. Annual ESR reporting informs the IRS of the number of full-time employees your business employed for the tax year. An ALE must also report about the health insurance and coverage your business offers these workers. According to the IRS, employer shared responsibility provisions are sometimes referred to as "the employer mandate" or the "pay-to-play provisions."

What Is the Employer Shared Responsibility Assessment and What Triggers It?

ESR reporting is the tool the IRS uses for tighter enforcement of the ACA's employer shared responsibility provisions. Informational reporting gives the IRS the data to determine if the ALE has fulfilled its responsibilities in offering essential health care coverage to eligible employees. The trigger for an employer shared responsibility assessment is at least one full-time employee receiving a premium tax credit when purchasing health insurance coverage in a government marketplace. The ALE must make a payment to the IRS. Additionally, informational penalties are levied against an ALE for failing to report to the IRS on time.

ESR Reporting Requirements: What You Need To Know

• ALE status: In general, an ALE is any employer with an average of 50 or more full-time employees, including full-time equivalents, during business days of the previous calendar year. A full-time employee works an average of 30 hours per week or 130 hours per month. ALE status is based on workforce hours from the previous year. Please note different rules apply to new businesses.
• Offers of coverage: The ESR provisions require that ALEs offer minimum essential coverage to at least 95% (or all but five) of full-time employees and their dependents to avoid one of the potential assessments. Remember that the employer is still at risk of being assessed another type of assessment for not offering coverage that meets minimum actuarial value or affordability requirements to all full-time employees if any of these employees who are not offered adequate and affordable coverage receive a premium tax credit.
• Minimum essential coverage (MEC) and minimum actuarial value: Most broad-based medical plans meet the requirements for MEC and minimum value. A plan must cover at least 60 percent of the cost of medical expenses to qualify as meeting the minimum actuarial value requirement.
• Affordable coverage: The IRS has offered three optional safe harbor methods to help you determine this amount:
  • Form W-2 Safe Harbor
  • Rate of Pay Safe Harbor
  • Federal Poverty Line Safe Harbor

For specifics about the three affordable safe harbors, visit the IRS website.

• Forms to file: You must file forms 1094-C and 1095-C by February 28, 2025, if filing on paper, or March 31, 2025, if filing electronically.
• Forms to employees: Generally, you must provide applicable employees with copies of Form 1095-C by March 3, 2025, as the due date is automatically extended from January 31, 2025. The form details what type of coverage they were offered, for which months they were offered, and the cost of the least expensive employee contribution to the employee-only option offering MEC and minimum actuarial value.
• Penalties: If you fail to offer affordable and adequate coverage to full-time employees and their dependents, you risk a potential assessment when at least one full-time employee receives a premium tax credit. You may also face information penalties for incomplete, inaccurate, or late filing.

ESR Reporting Is Critical for Tax Compliance

Your employer shared responsibility payment helps safeguard your employees' health and well-being, upon which your business depends. Group health insurance offers various options to meet your employees' health needs and your business budget. At Paychex, we can help you find creative solutions that will help stretch both your healthcare dollars and those of your employees. With group health insurance and submitting your ESR reports correctly and on time to the IRS, you can avoid costly penalties while enjoying the benefits of a healthy workforce.